Two River Bancorp Reports 2017 Third Quarter Financial Results

Published 8:01 AM ET Tue, 24 Oct 2017
Globe Newswire

TINTON FALLS, N.J., Oct. 24, 2017 (GLOBE NEWSWIRE) -- Two River Bancorp (Nasdaq:TRCB) (the "Company"), the parent company of Two River Community Bank ("the Bank"), today reported a 25.5% and 18.6% increase in net income for the three and nine months ended September 30, 2017, respectively, excluding the effect of a Bank Owned Life Insurance ("BOLI") death benefit received during the prior year’s third quarter. All share and per share data for all referenced reporting periods have been adjusted for a 5% stock dividend paid on February 28, 2017.

Net income was $2.24 million, or $0.26 per diluted share, compared to $2.64 million, or $0.31 per diluted share.• The 2016 quarter included in net income a tax-free BOLI death benefit of $862,000, or $0.10 per diluted share. Excluding the BOLI death benefit, net income increased 25.5%. The receipt of this benefit affected several 2016 quarterly and year-to-date metrics.

Net interest income increased 12.7% to $8.42 million.

Non-interest income decreased 26.7% to $1.45 million, as a result of the BOLI benefit. Mortgage banking revenues increased 13.3% while gains on the sale of SBA loans increased 163.8%.

Net interest margin improved to 3.62% from 3.55%, largely due to both higher asset yields and core checking deposits.

Tangible book value per share was $10.46 at September 30, 2017, compared to $9.88 at December 31, 2016 and $9.63 at September 30, 2016.

Total assets at September 30, 2017 were $1.0 billion, compared to $940.2 million at December 31, 2016.

Total loans as of September 30, 2017 were $816.1 million, up 8.4% from $753.1 million at December 31, 2016.

Total deposits as of September 30, 2017 were $821.9 million, up 5.8% from $776.6 million at December 31, 2016.

Management CommentaryWilliam D. Moss, President and CEO, stated, “The Company posted another strong performance during the third quarter, highlighted by linked quarter improvement in all key metrics along with solid growth in loans and deposits. Excluding the BOLI benefit of $0.10 per share in the prior year’s quarter, earnings showed considerable growth, increasing to $0.26 from $0.21 in the prior year. Our earnings improvement was driven by high quality loan growth and fee income contributions from both our SBA and mortgage business lines. Loan growth of 11.2% annualized from year-end 2016 was tempered by two residential portfolio adjustable rate mortgage loan sales completed earlier this year, which totaled $8.2 million.”

Mr. Moss continued, “The Bank closed and consolidated two branches into a new and more visible location in Sea Girt, NJ at the end of the third quarter, which was a continuation of the Company’s strategic plan to maximize the profitability of our branch network. We expect annual pre-tax expense savings of $300,000 from this initiative while expecting this new location to provide better opportunity for growth. We also have continued to see solid increases in deposits, largely as a result of new municipal relationships, and have a number of initiatives in place to gain higher levels of deposits from existing customers.”

Dividend InformationOn October 18, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.045 per share, payable on November 29, 2017 to shareholders of record as of the close of business on November 8, 2017. This marks the 19th consecutive quarterly cash dividend, which is in addition to the 5% stock dividend paid in February 2017.

Key Quarterly Performance Metrics

3rd Qtr.

2ndQtr.

1st Qtr.

4thQtr.

3rdQtr.

9 Mo.Ended

9 Mo.Ended

2017

2017

2017

2016

2016

9/30/2017

9/30/2016

Net Income (in thousands)

$

2,237

$

2,128

$

1,802

$

2,567

$

2,644

$

6,167

$

6,064

Earnings per Common Share – Diluted

$

0.26

$

0.25

$

0.21

$

0.30

$

0.31

$

0.71

$

0.71

Return on Average Assets

0.89

%

0.87

%

0.76

%

1.08

%

1.16

%

0.84

%

0.91

%

Return on Average Tangible Assets(1)

0.91

%

0.88

%

0.77

%

1.10

%

1.19

%

0.86

%

0.93

%

Return on Average Equity

8.39

%

8.26

%

7.18

%

10.25

%

10.81

%

7.96

%

8.48

%

Return on Average Tangible Equity(1)

10.13

%

10.01

%

8.74

%

12.53

%

13.29

%

9.64

%

10.46

%

Net Interest Margin

3.62

%

3.49

%

3.45

%

3.43

%

3.55

%

3.52

%

3.56

%

Non-Performing Assets to Total Assets

0.23

%

0.32

%

0.18

%

0.19

%

0.20

%

0.23

%

0.20

%

Allowance as a % of Loans

1.25

%

1.25

%

1.25

%

1.27

%

1.25

%

1.25

%

1.25

%

(1) Non-GAAP Financial Information. See “Reconciliation of Non-GAAP Financial Measures” at end of release.

Loan CompositionThe components of the Company’s loan portfolio at September 30, 2017 and December 31, 2016 are as follows:

(in thousands)

September 30,2017

December 31,2016

Commercial and industrial

$

99,601

$

93,697

Real estate – construction

118,553

111,914

Real estate – commercial

507,507

460,685

Real estate – residential

62,416

59,065

Consumer

28,773

28,279

Unearned fees

(772

)

(548

)

816,078

753,092

Allowance for loan losses

(10,223

)

(9,565

)

Net Loans

$

805,855

$

743,527

Deposit CompositionThe components of the Company’s deposits at September 30, 2017 and December 31, 2016 are as follows:

(in thousands)

September 30,2017

December 31, 2016

Non-interest-bearing

$

163,841

$

160,104

NOW accounts

208,128

152,771

Savings deposits

261,766

261,438

Money market deposits

62,514

62,495

Listed service CD’s

38,971

47,648

Time deposits / IRA

55,629

56,489

Wholesale deposits

31,023

35,622

Total Deposits

$

821,872

$

776,567

2017 Third Quarter Financial Review

Net IncomeNet income for the three months ended September 30, 2017 decreased 15.4% to $2.24 million, or $0.26 per diluted common share, compared to $2.64 million, or $0.31 per diluted common share, for the same period last year. The decrease was a result of the previously mentioned BOLI benefit received in the third quarter of 2016. Excluding the BOLI benefit, net income increased 25.5%.

On a linked quarter basis, third quarter 2017 net income increased 5.1% from the second quarter of 2017. The second quarter included an income tax benefit related to the adoption of ASU 2016-09, Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting, that positively impacted net income by $145,000, or $0.02 per diluted share, as compared to a benefit of $32,000 in the current quarter.

Net income for the nine months ended September 30, 2017 increased 1.7% to $6.17 million, or $0.71 per diluted share, compared to $6.06 million, or $0.71 per diluted share, in the same prior year period. Excluding the BOLI benefit, net income increased 18.6%.

Net Interest IncomeNet interest income for the quarter ended September 30, 2017 was $8.42 million, an increase of 12.7% compared to $7.47 million in the corresponding prior year period. This was largely due to an increase of $84.4 million, or 10.1%, in average interest-earning assets, primarily attributable to growth in the loan portfolio. On a linked quarter basis, net interest income increased $458,000, or 5.8%, from $7.96 million.

For the nine months ended September 30, 2017, net interest income increased 9.8% to $24.0 million from $21.9 million in the prior year period.

Net Interest MarginThe Company reported a net interest margin of 3.62% for the third quarter of 2017, compared to 3.49% in the second quarter of 2017 and 3.55% reported for the third quarter of 2016. The net interest margin improvement from the second quarter of 2017 was the result of slightly higher yielding interest-earning assets coupled with a higher level of average core checking deposits.

The net interest margin for the first nine months of 2017 was 3.52%, compared to 3.56% in the prior year period.

Non-Interest IncomeNon-interest income for the quarter ended September 30, 2017 totaled $1.45 million, a decrease of $530,000, or 26.7%, compared to the same period in 2016. The decrease was the result of the previously mentioned BOLI benefit received in the third quarter of 2016. Residential mortgage banking revenue increased $42,000, or 13.3%, from the prior year period while gains from the sale of SBA loans increased $190,000. Additionally, service fees on deposit accounts increased by $70,000, or 45.5%, mainly due to a realignment of fees on various products.

On a linked quarter basis, non-interest income decreased by $85,000, or 5.5%, from the second quarter of 2017, which included an $86,000 gain from the sale of $3.6 million of portfolio adjustable rate mortgages compared to no such sale in the current quarter.

For the nine months ended September 30, 2017, non-interest income increased $74,000, or 1.8%, to $4.1 million from the same period in 2016.

Non-Interest ExpenseNon-interest expense for the quarter ended September 30, 2017 totaled $6.18 million, an increase of $836,000, or 15.7%, from the $5.34 million reported in same period in 2016, primarily due to salary and benefit increases along with a one-time $250,000 expense recovery settlement from an OREO property in the third quarter of 2016. On a linked quarter basis, non-interest expense increased $104,000, or 1.7%.

For the nine months ended September 30, 2017, non-interest expense increased $1.91 million, or 11.8%, to $18.0 million compared to the same prior year period.

Provision for Loan LossesDuring the quarter, a provision for loan losses of $255,000 was expensed, compared to $470,000 in the same prior year period. The majority of the third quarter 2017 provision was to support the strong loan growth. The Company had $15,000 in net loan recoveries during the quarter, compared to $436,000 in net loan charge-offs during the same period last year. For the nine months ended September 30, 2017, a provision of $855,000 was expensed, compared to $860,000 for the same prior year period. The Company had $197,000 of net loan charge-offs during the first nine months of 2017, compared to $121,000 in net loan charge-offs in the same prior year period.

As of September 30, 2017, the Company's allowance for loan losses was $10.22 million, as compared to $9.57 million as of December 31, 2016. The loss allowance as a percentage of total loans was 1.25% at September 30, 2017 compared to 1.27% at December 31, 2016.

Financial Condition / Balance Sheet

At September 30, 2017, the Company maintained capital ratios that were in excess of regulatory standards for well capitalized institutions. The Company's Tier 1 capital to average assets ratio was 9.07%, its common equity Tier 1 to risk weighted assets ratio was 10.09%, its Tier 1 capital to risk weighted assets ratio was 10.09%, and its total capital to risk weighted assets ratio was 12.39%.

Total assets as of September 30, 2017 were $1.0 billion, an increase of 6.4% compared to $940.2 million as of December 31, 2016.

Total loans as of September 30, 2017 were $816.1 million, an increase of 8.4% compared to $753.1 million at December 31, 2016.

Total deposits as of September 30, 2017 were $821.9 million, an increase of 5.8% compared to $776.6 million as of December 31, 2016. Core checking deposits at September 30, 2017 increased to $372.0 million, up $59.1 million, or 18.9% from year-end. This growth was primarily driven by a new municipal relationship in the first nine months of 2017 along with the Company’s focus on building core checking account deposit relationships.

Asset QualityThe Company's non-performing assets at September 30, 2017 were $2.35 million as compared to $1.81 million at December 31, 2016 and $1.85 million at September 30, 2016. Non-performing assets to total assets at September 30, 2017 were 0.23% compared to 0.19% at December 31, 2016 and 0.20% at September 30, 2016.

Non-accrual loans were $2.35 million at September 30, 2017, compared to $1.55 million at December 31, 2016 and $1.59 million at September 30, 2016. During the second quarter, three relationships migrated to non-accrual status. These relationships were previously identified as TDRs or exhibited negative financial trends which management had identified. During the third quarter of 2017, one non-accrual loan totaling $548,000 paid off and $75,000 of recaptured interest and legal costs associated with that loan were received. There was no OREO at September 30, 2017, compared to $259,000 at both December 31, 2016 and September 30, 2016 as the one OREO property was sold for a loss of $17,000 during the current quarter.

Troubled debt restructured loan balances amounted to $8.05 million at September 30, 2017, with all but $1.13 million performing. This compares to $8.23 million at December 31, 2016 and $8.52 million at September 30, 2016.

About the CompanyTwo River Bancorp is the holding company for Two River Community Bank, which is headquartered in Tinton Falls, New Jersey. Two River Community Bank operates 14 branches along with two loan production offices throughout Monmouth, Middlesex, Union, and Ocean Counties, New Jersey. More information about Two River Community Bank and Two River Bancorp is available at www.tworiverbank.com.

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's current views and expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as "continue," "expect," "look," "believe," "anticipate," "may," "will," "should," "projects," "strategy" or similar statements. Actual results may differ materially from such forward-looking statements, and no reliance should be placed on any forward-looking statement. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, unanticipated changes in the financial markets and the direction of interest rates; volatility in earnings due to certain financial assets and liabilities held at fair value; competition levels; loan and investment prepayments differing from our assumptions; insufficient allowance for credit losses; a higher level of loan charge-offs and delinquencies than anticipated; material adverse changes in our operations or earnings; a decline in the economy in our market areas; changes in relationships with major customers; changes in effective income tax rates; higher or lower cash flow levels than anticipated; inability to hire or retain qualified employees; a decline in the levels of deposits or loss of alternate funding sources; a decrease in loan origination volume or an inability to close loans currently in the pipeline; changes in laws and regulations; adoption, interpretation and implementation of accounting pronouncements; operational risks, including the risk of fraud by employees, customers or outsiders; and the inability to successfully implement or expand new lines of business or new products and services. For a list of other factors which would affect our results, see the Company's filings with the Securities and Exchange Commission, including those risk factors identified in the "Risk Factor" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2016. The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company assumes no obligation for updating any such forward-looking statements at any time, except as required by law.

(1) Included in interest income on loans are loan fees.(2) Includes non-performing loans.(3) The interest rate spread is the difference between the weighted average yield on average interest-earning and the weighted average cost of average interest-bearing liabilities.(4) The interest rate margin is calculated by dividing annualized net interest income by average interest earning assets.

(1) Included in interest income on loans are loan fees.(2) Includes non-performing loans.(3) The interest rate spread is the difference between the weighted average yield on average interest-earning and the weighted average cost of average interest-bearing liabilities.(4) The interest rate margin is calculated by dividing annualized net interest income by average interest earning assets.

Reconciliation of Non-GAAP Financial Measures

The press release contains certain financial information determined by methods other than in accordance with generally accepted accounting policies in the United States (GAAP). These non-GAAP financial measures are "book value per common share," "tangible book value per common share," "return on average tangible assets," and "return on average tangible equity." This non-GAAP disclosure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Our management uses these non-GAAP measures in its analysis of our performance because it believes these measures are material and will be used as a measure of our performance by investors.